How America’s Anti-Corruption Law Combats Fraud in 2019

General Electric announced late in January that it had reached a settlement with the Department of Justice to bring an end to an investigation into their subprime lending activities. GE will pay a $1.5 billion civil penalty in order to conclude the probe. The company had previously booked a reserve of the same amount to settle the DOJ.

The probe sought to investigate potential violations of financial and anti corruption law by WMC Mortgage.

The now-defunct mortgage firm was purchased by GE in 2004. It was [part of a bid to enter the then-lucrative subprime lending market. It was a move that has left GE, once the most admired company in America, dogged by a battered reputation.

Despite the steep price of the settlement, GE investors are breathing a sigh of relief for the first time in a long time. But some may be wondering how this was ever allowed to happen.

Searching for the Subprime Blackbox

This all happened amid the bank failures and bailouts of the 2008 meltdown. In that environment, GE’s misadventures escaped public scrutiny for a time.

But as lawsuits have mounted and testimony from former employees has surfaced, it starts to look like a perfect teaching example of the breakdowns in corporate compliance practices that helped make the subprime crisis possible.

WMC Mortgage Before GE

GE has borne the brunt of the blame for the bad loans WMC made. But the root of its trouble seems to go back to about ten years before GE’s acquisition.

WMC was founded in 1955 as a subsidiary of paper manufacturer Weyerhaeuser Co. In the ’90s, Apollo Management LP acquired WMC. Apollo Management used the company to get involved in the subprime lending business.

Already at this stage, there were apparent issues. WMC’s new parent company began heavily incentivizing its top sellers. They were encouraged to push these loans regardless of how risky some these investments were.

In some cities, the rates of foreclosure on WMC were so high that the local newspapers accused the firm of self-inflicting its worst wounds.

Despite experiencing its share of ups and downs, WMC managed to turn reliable profits by 2003. It’s at this point where GE enters the story.

Due to the slow economy of the early 2000s, GE was looking for new avenues to grow. The rapidly heating-up home lending market seemed like the ideal venue to do so.

Acquisition and Collapse

Under GE’s management, the hard-selling culture at WMC would only intensify. Some of the allegations of corruption are staggering.

According to whistleblowers within the company, employees would falsify documentation about potential borrowers. They lied about employment history, income, and verifications that they had been paying rent regularly for years.

Caught up in the culture of selling these loans no matter what, employees misrepresented risky loans that led to the company to disaster.

GE’s lending debacle is just one example among many from the years leading up to the subprime bubble burst. And the disquieting thing is that little headway has been made towards preventing another such event.

The Obama administration introduced new regulations in the wake of the subprime meltdown. But as of this writing, many of them have already been relaxed.

Some commentators have pointed out that current trends are already following the same trajectory that the subprime crisis took. Should another similar meltdown be right around the corner, it will fall to businesses to ensure that they’re on the right side of the law.

Ensuring Your Anti Corruption Law Compliance

In order to insulate yourself from the consequences of running afoul of anti corruption law, you need to ensure complete regulatory compliance.

This can prove difficult at times, however. The regulatory landscape shifts with each administration, and the burden falls on you to stay abreast of it.

Momentum Events’ ACES Summit brings together leaders in government and corporate compliance leaders in a customizable program that you can tailor to your needs.

Learn more about how attending the ACES Summit can help you meet your compliance objectives.